The  Government’s  Interest  in  Business  Efficiency 
By  HON.  HERBERT  KNOX  SMITH 

Commissioner  of  Corporations,  Department  of  Commerce  and  Labor 

THE  NEED  OF  BUSINESS  EFFICIENCY 
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Gentlemen,  I thoroughly  welcome  what  I take  to  be  the  funda- 
mental purpose  of  this  society;  namely,  to  counteract  the  prevailing 
American  mistake,  the  underestimation  of  the  expert.  I do  not  know 
where  we  got  the  opinion  that  we  could  do  anything  without  learning 
how  to  do  it  first,  unless  it  goes  back  to  the  Declaration  of  Independ- 
ence. Probably  it  ran  back  to  the  pioneer  days,  when  every  one  had 
to  be  a jack-of-all  trades  and  expert  in  none.  That  was  true  of 
primitive  civilization.  It  is  no  longer  true,  and  if  we  are  to  maintain 
our  position  among  the  nations  of  the  world  we  have  to  get  away 
from  it.  Therefore  I am  glad  to  see  a society  organized  with  such  a 
purpose. 

The  Government  has  the  deepest  interest  in  permanent  business 
efficiency,  because  the  currents  of  commerce  now  dominate  modern 
civilization.  For  domestic  progress,  and  for  international  standing, 
the  Government  desires  a business  machinery  which  shall  efficiently 
handle  these  great  forces,  but  the  nation  must  take  a broader  view 
of  efficiency  than  does  the  individual.  For  the  nation  it  is  not  only 
essential  that  this  machinery  shall  successfully  produce,  transport,  and 
sell  the  necessaries  and  luxuries  of  life.  It  is  even  more  vital  that  its 
benefits  shall  be  justly  apportioned  among  the  citizens  according  to 
the  services  they  render  toward  the  national  advance. 

A nation  is  a long-distance  proposition.  The  generation  is  the 
smallest  unit  of  calculation  in  national  advance  or  decay.  A thing 
may  work  with  an  individual,  and  for  a few  years,  and  yet  be  neither 
expedient  nor  efficient  in  national  life.  I therefore  present  a few  of 
those  underlying  business  factors  that  carry  over  from  one  generation 
to  another. 

Read  at  the  first  meeting  of  the  Efficiency  Society,  held  in  New  York  City,  March  18 
and  19,  1912. 

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EFFECTS  OF  CONCENTRATION  OF  COMMERCIAL  POWER 

A remarkable  concentration  of  commercial  power  has  taken  place 
in  the  last  twenty  years.  One  of  the  important  results  has  been  the 
“integration”  of  industry.  Twenty  years  ago,  for  example,  one  in- 
terest owned  ore  mines,  another  vessel  fleets  in  the  Great  Lakes,  an- 
other blast  furnaces,  another  still  steel  works,  and  so  on.  The  modern 
steel  company,  however,  usually  links  up  under  one  control  many,  if 
not  all,  of  these  processes,  as  an  integrated  concern.  This  is  true, 
more  or  less,  of  the  other  staple  industries. 

From  the  economic  standpoint,  integration  increases  efficiency. 
It  saves  duplication  of  expense,  allows  much  more  accurate  adjust- 
ment of  supply  to  demand,  improves  productive  processes,  and  the 
agencies  of  distribution.  All  of  this  is  desirable  from  the  national  as 
well  as  the  individual  standpoint. 

On  the  other  hand,  this  integration  has  frequently  been  accompa- 
nied by  a tendency  toward  monopolization,  often  so  closely  inter- 
woven that  it  is  difficult  to  separate  the  two.  They  are,  however,  very 
different  in  their  national  bearing.  Integration  means  a greater  ability 
to  serve  the  public  needs  at  a less  cost.  Monopolization  means  a 
greater  ability  to  take  advantage  of  the  public  needs  by  an  arbitrary 
control  over  supply  and  demand,  reserving  to  the  controlling  interest 
an  arbitrary  and  undue  share  of  the  benefits  of  the  industrial  ma- 
chinery. Ultimately  the  nation  must  segregate  the  evil  from  the  good 
in  some  practical  working  system. 

THE  CONSERVATION  OF  OUR  NATIONAL  RESOURCES 

Another  difficult  question  of  public  policy  centers  around  our  nat- 
ural resources.  The  public  has  the  deepest  interest  in  them,  for  they 
are  at  the  basis  of  our  material  existence.  Most  of  them  have  passed 
into  private  hands.  There  is  still  left,  however,  a considerable  part 
of  our  natural  resources  in  the  control  of  the  Government,  Federal  or 
State.  Certainly,  we  cannot  handle  them  satisfactorily  through  the 
policy  we  have  followed  in  the  past,  the  indiscriminate  giving  away 
to  all  who  ask,  at  nominal  prices.  One  great  rule  applies  to  many 
natural  resources ; namely,  that  they  can  be  effectively  developed  only 
in  rather  large  units ; that  any  attempt  to  distribute  them  in  small  units 
equally  among  individual  citizens  by  transfer  of  title  will  simply 
result  in  concentration  under  private  control,  and  not  in  just  distribu- 
tion of  the  benefits  thereof. 

Take  the  case  of  our  standing  timber.  We  have  long  been  apply- 

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ing  the  “homestead  theory”  to  standing  timber — 160  acres  to  any  man 
who  was  willing  to  pay  the  nominal  price  for  it.  Working  well  as  to 
agricultural  lands,  it  failed  absolutely  as  to  timber.  What  can  one 
small  owner  of  160  acres  in  a great  forest  section  do  with  it  ? He  can- 
not farm  it  until  it  is  cleared,  and  it  will  cost  him  more  to  clear  it  than 
he  can  buy  good  land  for  elsewhere.  He  cannot  log  it  profitably,  be- 
cause a small  holding  does  not  justify  the  necessary  equipment  of 
mills  and  railways.  The  only  thing  he  can  do  is  to  sell  it  cheap  to  a 
large  lumber  interest.  And  this  is  exactly  what  has  happened,  result- 
ing in  enormous  concentration  of  our  timber.  Obviously,  the  home- 
stead theory  of  distribution  will  not  work  in  cases  like  this.  We  must 
substitute  some  other  policy  as  to  such  resources. 

Thus  far  we  have  been  able  to  avoid  any  final  issue  on  the  very 
serious  questions  created  by  our  past  policy.  But  just  beyond  the  verge 
of  our  industrial  experience,  any  thoughtful  man  can  see  the  very 
difficult  problem  that  may  some  time  be  thrust  upon  us  here,  in  the 
conflict  between  private  rights  and  public  and  national  needs. 

THE  REAL  MEANING  OF  NATIONAL  EFFICIENCY 

I have  spoken  thus  far  of  the  capitalistic  side  of  our  business 
machinery.  The  permanence  of  that  machinery  must  depend  also  on 
the  preservation  of  the  laborer.  Practically  every  civilized  country  in 
the  world,  except  the  United  States,  has  a workmen’s  compensation 
system.  It  is  based  on  the  theory  that  accidents  to  the  laborer  in  a 
given  industry  are  a normal  charge  upon  that  industry ; that  compensa- 
tion is  not  a mere  individual  question  for  litigation  between  the  laborer 
and  his  employer,  but  should  be  met  by  a charge  on  the  product  of 
the  industry  itself,  in  exactly  the  same  manner  that  breakage  or  ob- 
solescence of  machinery  is  met. 

Finally,  there  is  the  broad  question  of  business  methods  and  their 
effect  on  the  machinery  of  industry.  The  nation  must  view  business 
conditions  as  a process  of  strict  evolution.  It  is  a survival  of  the  fittest 
— the  survival  of  the  man  best  adapted  to  his  business  environment. 
Therefore,  the  responsibility  lies  wholly  with  us,  the  citizens,  for  we 
determine  that  environment.  If  we  maintain  conditions  under  which 
all  the  highways  of  commerce  are  equally  open,  under  which  the  sole 
path  of  success  lies  through  the  service  of  the  public,  and  the  only  way 
of  succeeding  in  the  competitive  struggle  is  by  giving  the  better  article 
or  the  lower  price,  then  we  are  building  up  an  efficient  business  ma- 
chinery, and  one  from  which  we  all  profit.  We  are  bringing  forward 

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the  men  who  are  creators  and  the  improvers,  the  makers  of 
national  efficiency,  both  in  production  and  apportionment  of  benefits. 

If,  on  the  other  hand,  we  permit  conditions  which  do  not  favor 
fair  competition,  if  we  allow  success  to  be  the  reward  for  die  getting 
of  special  privileges,  unfair  favors,  illegal  rebates  and  the  maintenance 
of  oppressive  competition,  we  are  heading  toward  disaster.  We  are 
throwing  the  control  of  our  business  forces  into  the  hands  of  men  who 
gain  and  hold  power,  not  by  increasing  the  efficiency  of  our  business 
machinery,  but  by  breaking  the  efficiency  of  others.  Their  success  is 
destructive,  not  constructive,  is  wasteful,  and  its  gains  are  not  shared 
with  the  public.  The  evolution  will  be  as  inevitable  as  the  mills  of  the 
gods.  What  a man  soweth  that  shall  he  also  surely  reap;  and  more 
assuredly  still,  a nation.  A man  may  make  errors  and  commit  crimes, 
and  now  and  again  throw  the  results  on  the  next  generation ; but  there 
is  no  escape  for  a nation  either  from  its  errors  or  its  sins. 

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